Morrison inaction, Ukraine conflict weigh on clean energy investment

Australia’s leading clean energy investors have cited the Russia invasion of Ukraine and the ongoing lack of coherent direction on energy policy from the Morrison government as the key dead weights on investor confidence.

The latest quarterly investor survey commissioned by the Clean Energy Investor Group shows investors are wary about the future of national energy policy given the uncertainties about the Morrison government’s policy agenda and the outcome of the looming federal election.

And these uncertainties, the survey results suggest, have been compounded by the upheaval in international energy markets largely triggered by the Russia Invasion of Ukraine.

“Investors report that the most negative development affecting clean energy in the quarter has been the Russian war against Ukraine with its associated impacts on the global economy,” Clean Energy Investor Group CEO Simon Corbell said.

“Investor Confidence has stayed the same this quarter. The direction of reform has failed to improve for the second quarter in a row. Australia is getting further off track against the Step Change scenario and out of step with international investor sentiment.”

Conflict in Ukraine has rippled through international energy markets – especially markets for coal, oil and gas – and has contributed to higher Australian fuel prices. These impacts have contributed to surging wholesale electricity prices, currently at near all-time highs.

However, investors noted that local developments had also made an impact on investor confidence – for good and for bad – with the first quarter of the year seeing major announcements of accelerated retirements of some of Australia’s largest coal fired generators.

“There were big international and national headlines over the quarter, but investors reported that the most important development was the announcements from Origin Energy and AGL bringing forward the closure dates for coal power stations in NSW and Victoria,” Corbell said.

“This was the most positive headline for clean energy but does also carry some risk depending on how the NSW, Victorian and federal government respond.”

The quarterly survey gauges the views of members of the Clean Energy Investor Group, which brings together some of Australia’s largest active investors in new wind, solar and energy storage projects.

Corbell said some developments in the last quarter had helped to spur investor hopes, including the strong support being shown by State and Territory governments and their moves to progress the development of renewable energy zones.

Investors have been lining up to participate in proposed renewable energy zones, including by overwhelming the New South Wales government with a flood of project proposals that has significantly exceeded the volume of new generation capacity the government is seeking to attract through the zones.

“Investors were positive about the NSW government’s response to the coal closure announcements in its decision to accelerate the Electricity Infrastructure Roadmap,” Corbell said.

“Investors responded enthusiastically to the Renewable Energy Zone (REZ) Registration of Interest rounds for the Hunter REZ with 40 GW of proposals and 34 GW for the South West REZ.”

“This shows that despite the regulatory risks faced by clean energy investment in the NEM, the underlying economics is strongly positive,” Corbell added.

As an effective repudiation of the Morrison government’s energy policy agenda, investors indicated that did not think the most recent federal government had made any impact on investor confidence.

The federal budget lacked any major commitments to support an accelerated transition to clean energy, and was labelled a “missed opportunity”.

Investors see little progress from the Morrison government on key reform measures, including addressing delays in new transmission network infrastructure investment, a lack of progress on reforming marginal loss factors and emissions reduction policy.

“The second most important headline for clean energy was the Ukraine war. Investors viewed the federal budget as having no impact on the investment environment,” Corbell said.

The Clean Energy Investor Group also cited the potential threats posed by locational marginal pricing – which could disproportionately shift the cost of new network infrastructure onto new clean energy projects – as continuing to weigh on investor confidence.

The group also pointed to “unrealistic” scenario planning for the National Electricity Market and timetables for coal power station closures as contributing to a lack of investor confidence.

There have been widely held views across the electricity sector that coal-fired power stations are likely to close much earlier than assumed – a suspicion at least in part confirmed by the accelerated closure dates for the Eraring power station, announced by Origin in February.